PTC’s FQ1 shows strength across the board

PTC last night gave us our first glimpse into how 2016 ended for PLMish companies — and the news was solid. Demand for PTC’s CAD products was up and the company’s “land and expand” strategy in IoT seems to be working. Not so awesome: the program to get customers to re-up lapsed maintenance contracts seems to have stalled in FQ1. Nonetheless, CEO Jim Heppelmann told investors that “our Q1 results represent a very strong start to FY17 and continue the momentum we built over the last year. In Q1 we executed very well across our key strategic and operational objectives … All in all this was a strong start to the year.” There’s a lot to dig through; I’ve bolded the things I think are most interesting.

The details:

FQ1 ’17/CQ4 ’16 GAAP revenue was $286 million, down 2% year/year (as expected, given the shift to subscriptions) and within the company’s guidance range. Had the subscription mix been as anticipated, and in constant currencies (cc), PTC says revenue would have been $300 million, above the high end of the range (and well past expectations from just about everyone)

Software revenue was $240 million, down 1% as reported. Within Software, subscription revenue was up 145% and perpetual license revenue was down 28%. Math.

Support (aka maintenance) revenue was down 12%. The company says several factors contributed: more than expected subscription bookings, support contract converting to subscription, and fewer support win-backs in the channel. That last is a bit troubling. PTC had launched a win-back a couple of months ago that incentivized customers to re-up their maintenance as a subscription – that should have had a follow-on effect in FQ4.

PTC now reports software revenue is 2 buckets: Solutions and IoT. Solutions software is basically everything that’s not IoT and reported revenue of $219 million, down 4%. PTC says the decline is (you guessed it) due to more subscriptions than planned; if everything had closed as expected, PTC thinks Solutions revenue would have been down 2% cc

This is the awesome part: PTC says it saw “Low-teens growth in CAD and solid growth in PLM” (W00t!), and a decline in SLM because of the number of perpetual deals that closed a year earlier. I say W00t because PTC continues to emphasize IoT over its more traditional products – -but you can’t run a billion dollar ship on $100 million in IoT revenue. Mr. Heppelmann didn’t say W00t, but told investors that “improved operational execution drove solid Q1 results. CAD led the way with double-digit bookings growth, primarily driven by strength in Europe and strength in the Americas channel where go-to-market initiatives launched in FY16 are beginning to bear fruit. Solid PLM bookings benefited by another strong quarter for Navigate, our ThingWorx-based PLM offering launched in early FY16.”

Speaking of, IoT software revenue was $21 million, up 64%. Continued adoption across the ThingWorx platform, Kepware, and Vuforia are the keys here.

Across the business, bookings were $90 million, $10 million above the high end of the company’s guidance — Mr. Heppelmann said he saw “particularly strong IoT results, but also solid execution in our Solutions business”

The company continues to struggle to predict how customers choose to buy. It had predicted 55% of revenue from subscriptions; it reported that 65% of revenue was from subscriptions. An IoT subscription megadeal (defined as over $5 million) skewed the results but Mr. Heppelmann said that, even without that deal, bookings and subscriptions would have been ahead of guidance

By geo, revenue from the Americas was $107 million, down 1% a reported, again because of the subscription mix. Subscription revenue was up 108% cc

Revenue from Europe was $84 million, down 3% (down 1% cc). PTC says that bookings were up 28% cc and that the mix of subscription as a function of total revenue more than doubled from a year ago. Subscription revenue grew 144% cc

Finally, revenue from Asia Pacific was $50 million, up 4% (up 1% cc). This is interesting: bookings declined 2% cc and the subscription mix more
than doubled — and subscription revenue grew 651% cc. That’s 6x in one year. PTC cautions that Japan usually has a lot of large deals, which create a lumpy timeline and that it’s monitoring currency movements

CFO Andrew Miller gave some interesting stats about PTC’s channel: In PTC’s direct business, the subscription mix was 73%, while in the channel, the subscription mix was 43%.That’s interesting because PTC’s channel typically deals with smaller accounts, and is more CAD-centric. This means that those buyers aren’t as wild about subs as larger, more diverse buyers. It’s a trend to watch. But it’s different in the Americas, where roughly 2/3 of channel bookings were subscription. Mr. Heppelmann, in answer to a question, said that “the big thing that happened in CAD is that our North American channel, which had been for years kind of a perennial weakness, has really stepped up. We are looking at four consecutive, really strong channel growth quarters in North America .. our channel in North America had been comparatively weak but we made a lot of investments and program changes, and even some personnel changes dating back a few years. I think to me that’s the single biggest factor. Not the only factor, but the single biggest factor in what’s improving our CAD business.”

A good start to the new fiscal year, and a solid ending to calendar 2016. PTC said it expects revenue of $280 million to $285 million in FQ2 and revenue ranging from $1.17 billion to $1.18 billion for the year. That would be an increase of about 3% after several years of declines. One more W00t.